Antitrust Law Daily Wrap Up, ANTITRUST—D. Del.: Exclusivity agreement between aircraft manufacturer and training company caused no antitrust injury, (Aug 30, 2016)

By Edward L. Puzzo, J.D.

A flight training company was unable to sustain an antitrust claim against a competing flight training company and aircraft manufacturer that had entered into an exclusivity agreement, because such agreements were presumptively legal when entered into as the result of a competitive bidding process, the federal district court in Wilmington, Delaware has ruled (CAE Inc. v. Gulfstream Aerospace Corporation, August 26, 2016, Stark, L.).

Defendant Gulfstream is one of the largest manufacturers of business aircraft. Plaintiff CAE and its competitor, defendant Flightsafety International, sell flight simulators used in the training of military and civilian flight personnel. Flight simulators are customized for each make and model of aircraft, using the manufacturer's flight test data, hardware and software mimicking the instruments and operation of the aircraft, and physical cockpit equipment (known as "data, parts and equipment," or DP&E).

When a new aircraft model is announced, the court explained, flight simulator companies bid for the right to be the manufacturer's authorized training provider in order to work with the manufacturer to develop the simulator and to gain the earliest access to the aircraft's DP&E. Companies that are not the manufacturer's authorized training provider can obtain the DP&E at a later date from the manufacturer or third party.

In 2009, soon after Gulfstream's announcement of its model G650 business jet, Flightsafety was selected as the manufacturer's authorized training provider. Two years later, Gulfstream refused CAE's request for the DP&E, stating that its agreement with Flightsafety prevented it from providing the DP&E to any Flightsafety competitor. Despite this refusal, CAE was able to obtain some of the DP&E for the G650 from Honeywell, and used it to announce the pending release of its own G650 flight simulator. Subsequently, Gulfstream entered into an agreement with Honeywell that required Gulfstream's consent before selling any of its DP&E for use in a G650 simulator. By continuing to withhold consent, Gulfstream prevented CAE from completing its own G650 flight simulator.

CAE consequently brought claims against Flightsafety and Gulfstream, alleging that their actions constituted a restraint of trade in violation of Section 1 of the Sherman Act. The defendants moved to dismiss, arguing that the agreement between them did not result in antitrust injury.

In order to state a claim under Section 1 of the Sherman Act, the court stated, a plaintiff must allege (1) an agreement (2) imposing an unreasonable restraint of trade within a relevant product market (3) resulting in antitrust injury. The court found that the agreement between Flightsafety and Gulfstream satisfied the first element.

Restraint of trade. For the second element, the court adopted CAE's definition of the relevant market as the market for G650 flight simulators and training. In the context of antitrust analysis, the court explained, whether two products were part of the same relevant market required an evaluation of product interchangeability, industry recognition, product characteristics, production facilities, customer bases, price independence, sensitivity to price change, and specialized vendors. Under those criteria, the court was satisfied that the specialization in flight simulation and training for G650s was sufficiently unique to conclude that CAE and Flightsafety competed in the same relevant market.

The next question, the court stated, was whether the agreement between Flightsafety and Gulfstream imposed an unreasonable restraint on competition in the relevant market. The court found that CAE's claim that Flightsafety was able to charge 20 to 30 percent more for its G650 training services than for the training services of comparable models of aircraft satisfied the unreasonable restraint on competition requirement. Thus, the second element was also satisfied.

Antitrust injury. The third element—antitrust injury—required pleading the competition-reducing effect of defendants' action. Here, the court found, CAE's pleading was inadequate. The exclusivity agreement, whereby Gulfstream would exclusively work with Flightsafety to develop training for the G650, was presumptively legal, especially when the provider was chosen through a competitive process. The court noted that one reason such exclusivity agreements are permissible is they have no greater anti-competitive impact than if Gulfstream had chosen to develop its own training services in-house. In addition, the agreement did not prevent CAE from independently developing a G650 flight simulator without the assistance of Gulfstream.

As to Gulfstream's efforts to dissuade Honeywell from working with CAE, these actions might have caused antitrust injury were Honeywell a neutral third party, the court opined. But in the court's view, Honeywell only had access to the G650 DP&E because it had worked with Gulfstream to develop the aircraft. Hence Honeywell was an associate of Gulfstream rather than a disinterested or neutral third-party. Thus, there was no antitrust injury, and CAE failed to plead the facts necessary to sustain a claim under Section 1 of the Sherman Act, the court ruled. Consequently, the court dismissed CAE's antitrust claim.

The case is No. 15-924-LPS.

Attorneys: Jack B. Blumenfeld (Morris, Nichols, Arsht & Tunnell LLP) for CAE Inc. Benjamin J. Bradford (Jenner & Block LLP) for Gulfstream Aerospace Corporation. Philip A. Rovner (Potter Anderson & Corroon, LLP) for Flightsafety International, Inc.

Companies: CAE Inc.; Gulfstream Aerospace Corporation; Flightsafety International, Inc.

Cases: Antitrust DelawareNews